Anaerobic decomposition produces among other things hydrogen sulfide gas. It is this gas that makes flatulents distinctive from, shall we say, the bouquet of a rose. This was illustrated in a recent coverage case involving a Minnesota pig farm that created a concrete lagoon with capacity to hold 1.5 million gallons of manure. Three-quarters of a mile away was a neighbor’s home.
In many property-insurance policies, a party has a right to demand an appraisal, which is procedure in which the value of lost or damaged property is determined. Typically, an appraisal takes the form of what I call a 1 + 1 + 1 structure – each party appoints its own appraiser, and if the two party-appointed appraisers cannot agree on a number the two together then select an umpire (or a court will select an umpire to decide if the two cannot agree on one). That some form of alternative dispute resolution is used for valuation, however, does not mean that there is no room for judicial intervention in disputes involving insurance policies with appraisal provisions.
A common enough scenario in a liability-insurance case: the parties file cross-motions for summary judgment, with the insurer arguing it has no duty to defend. In Acme United Corp. v. St. Paul Fire & Marine Ins. Co. (7th Cir. Jan. 9, 2007), the question presented was whether an advertising injury liability insurance policy provided coverage for a suit against the insured for product disparagement. In Acme, the district court accepted the argument of the insurer, thus cutting off the ability of the policyholder to obtain recovery of the defense costs it had run up. Where, as here, the appellate court reverses and finds coverage, does the district court’s now-reversed ruling effectively impale the policyholder’s bad-faith claim?
The duty to defend undertaken by an insurance company is an essential component of the “peace of mind” coverage provided by liability insurance protection. Given the breadth with which the duty to defend is ordinarily construed by the courts, the defense-cost coverage of a policy is also referred to as “litigation insurance,” that is, insurance against the risk and burden of suits brought against the insured. Disputes have raged over whether that litigation insurance applies, however, to suits against the insured alleging an – or only – intentional tort.
An insurance company that receives a claim from one of its policyholders inevitably wears both a white hat and a black one. The insurer is there to help its insured deal with the claim – it may dispatch claims handlers or service providers to help the policyholder in its time of need; the insurer, however, also is the insured’s adversary in the sense that it must determine whether it has any obligation to pay the insured. To the latter extent, the insured and the insurer have directly adverse interests. (The law of first-party insurance bad faith is predicated on the recognition in part of this fundamental adversity of interests between the insurer and its insured, especially at the precise moment when the insured is calling upon the insurer for performance.)
The insurer’s wearing two hats poses the opportunity for mischief when those roles get confused or blurred. Take the example of a defense lawyer hired by an insurance company to defend the insured: the defense attorney plainly has an attorney-client relationship with the insured, the touchstone of which is confidentiality. Assume that the defense lawyer is told a fact by the insured that supports the insurer’s denying coverage: the insured confesses to being drunk while driving, the insured acknowledges that it knew of a latent problem before it purchased the policy, or the insured knew of the potential claim against it for a long time but had simply hoped it would go away and so did not notify the insurer sooner. The insurance company might wish to learn of this fact because it might permit it to terminate its defense obligation and avoid paying anything on the claim. In these circumstances, may the defense counsel tell the insurance company about this admission from the insured?
Generally, the law allows “choses in action” to be alienated (sold). This is a change that has been adopted over the course of the last 100 years or more. See W.W. Cook, The Alienability of Choses in Action, 29 Harv. L. Rev. 816 (1916). Because claims under insurance contracts properly viewed are choses in action, (Black’s Law Dictionary (5th ed. 1979) at 219), most courts have allowed insurance claims to be sold, too, even when the transaction takes the form of an “assignment.”
While insurance-coverage law has developed over the last 20 years into a rarefied specialty practice, lawyers who handle the defense of liability cases cannot punt on considering coverage issues – or they risk malpractice claims by their disgruntled clients. The New York Appellate Division recently confirmed that defense counsel may be exposed for failing to investigate the possibility of coverage – even where defense counsel has been retained by another insurance company for the benefit of the insured defendant.
Insurers collect premiums, invest them, incur overhead, and pay claims. Sometimes this life cycle gets out of whack, leading to the voluntary or forced insolvency of an insurance company. Whenever an insolvency occurs, one job of the rehabilitator or liquidator is to equitably distribute whatever money is available to the policyholders with unpaid claims in the queue. And a policyholder that already received payment from the insurer may be required to disgorge those monies back to the estate if it is found that the claim payment constitutes a preference.
“Who pays” and “how much” continue to be central questions in insurance-recovery litigation by policyholders for asbestos, environmental clean up, pharmaceutical, lead-paint, toxic-tort and other conditions that produce loss over time. Because insurance contracts are governed by state law, the coverage wars apparently will continue until each inch of turf is won or lost. Most recently, the Delaware Supreme Court has weighed in on the question of trigger of coverage (“who pays”) for asbestos- liability claims, the Minnesota Supreme Court has addressed allocation of loss (“how much”) among triggered policies, and the New Hampshire Supreme Court has now been asked to address the allocation question, too.
A long-rumoured transaction between Equitas and Warren Buffett’s Berkshire Hathaway has been announced. This will be a two-step transaction whereby (1) Equitas will be absorbed into a National Indemnity Company subsidiary in exchange for a cash payment and a promise of providing additional reinsurance and (2) a channeling injunction will be obtained cutting off the exposure of Equitas, Lloyd’s, names, and Berkshire beyond the money in the new vehicle. If consummated, the deal will achieve the long-sought finality for names (the individual investors on the responsible pre-1992 syndicate years of account) and for the current Lloyd’s enterprise.